Urban population growth – punching above our weight?

Australia’s economic performance over the past two years has, in part, been constrained by a slowing rate of population growth.

But some perspective is also important – as on an international comparison, and particularly in relation to other rich countries, Australia is still punching far above its weight when it comes to population growth.

In 2014, our population grew by 1.53%, faster than the world average (1.19%) and much faster than other OECD countries (0.36%).

That Australia’s population growth rates are comparable with some emerging economies is remarkable. One of the reasons high income countries have lower population growth rates is that people have fewer children once income increases. On this front, Australia is no different. But unlike population growth in developing countries, which is driven by natural increase, Australia’s population growth is driven largely by international migration – 180,000 additional people in 2014-15, or 57% of population growth achieved.

As noted above, it’s been stronger in recent years. Australia’s net overseas migration hit a peak just over 300,000 in 2008, just ahead of the GFC. To some extent the strong migration flows are policy driven (permanent migration), while some of the flows also respond to economic conditions (temporary business and international student numbers).

This goes quite a way to explaining why the Australian economy has been relatively strong by global standards over the last few years. It’s harder to go into recession with strong population growth, as an expanding consumer base promotes spending by both governments and consumers.

However, this can give us a false view of our economic performance.

The tables below show that, even though we’re topping the list of key comparator economies in terms of population growth (even compared to India and China), we’re not translating this into growth in GDP per capita – our pre-eminent measure of living standards.

The direction of Australia’s strong population growth is concentrated in urban areas. In 2014-15, over 75% of this growth went into just four cities – Melbourne, Sydney, Brisbane and Perth. Predictably, our two big cities dominate these figures – 29% and 26% of growth went into Melbourne and Sydney respectively.

This kind of growth underpins many of the challenges which residents of our big cities will be familiar with – congested roads and public transport, crazy house prices and increasing strain on services.

While strong population growth is supportive of economic growth, it does places a strain on service delivery. A large part of this is the additional cost required to maintain and increase our provision of urban infrastructure which, according to the recent Infrastructure Australia plan, we’re not doing terribly well.

For Australia to continue driving its prosperity via population growth, we also need to invest in the key places where people are living – and Prime Minister Turnbull seems to have this in mind with his appointment of a Minister for Cities.

As the Federal budget rapidly approaches, it will be interesting to see whether this title comes with any cash.

David Rumbens is a Partner within Deloitte Access Economics. He is a macroeconomist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labour market analysis.